Bacha, Obiyathulla I. and Abdul, Jalil O. and Othman, Khairudin (1999): Issues In Stock Index Futures Introduction And Trading. Evidence From The Malaysian Index Futures Market. Published in: Capital Markets Review , Vol. 7, No. 1-2 (1999): pp. 1-46.
Download (199kB) | Preview
This paper examines several issues related to the introduction and trading of stock index futures contracts in Malaysia. Issues related to volatility, pricing efficiency, systematic patterns and lead-lag relationships are examined. These issues were studied by way of addressing six research questions. We use two data sets. First, daily price data for 4 years and 2 years respectively for stock and futures markets and second, intraday, 15 minute interval data for 43 days (2 months) of futures trading.
Based on our results, we find no evidence of any increase in the volatility of the underlying market following futures introduction. If anything, the one year period following futures introduction had lower volatility. Intermarket comparison showed futures volatility to be higher. No evidence of any expiration day effect was found. We find frequent mispricing, with most of it being underpricing. Including transaction costs showed very little mispricing. Analysis of the 15 minute intraday data showed clear evidence of an overall U-shape in futures volume and volatility. However, a minor third peak at reopening following lunch break was also evident. We find no evidence of a lead-lag relationship, rather a contemporaneous one. Both markets appear to react simultaneously to information arrival.
|Item Type:||MPRA Paper|
|Original Title:||Issues In Stock Index Futures Introduction And Trading. Evidence From The Malaysian Index Futures Market.|
|English Title:||Issues In Stock Index Futures Introduction And Trading. Evidence From The Malaysian Index Futures Market.|
|Keywords:||Impact of the introduction of Stock Index Futures Contracts on the underlying equity market|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading
G - Financial Economics > G1 - General Financial Markets
G - Financial Economics > G1 - General Financial Markets > G19 - Other
|Depositing User:||Obiyathulla/ I Bacha|
|Date Deposited:||30. Jan 2009 11:58|
|Last Modified:||05. Mar 2015 20:53|
1. Abhay Abyankar, "Linear and Nonliner Granger causality: Evidence from the U.K. Stock Index Futures Market", The Journal of Futures Markets, 1998, volume 18, No. 5, pp 519-540.
2. Abhay H. Abhyankar, "Return and Volatility Dynamics in the FT-SE 100 Stock Index and Stock Index Futures Markets", The Journal of Futures Markets, 1995, volume 15, No. 4, pp 457 - 488.
3. Antoniou A, Holmes P and Priestly R. (1998), "The Effects of Stock Index Futures Trading on Stock Index Volatility: An Analysis of the Asmmetric Response of Volatility to News", 18 pp 151 - 166.
4. Arditti F.D., Ayaydin S., Muttu R.K. and Rigsbee S. (1986), "A Passive Futures Strategy That Outperforms Active Management", Financial Analyst Journal, 42, pp 63-67.
5. Bacha O. and Villa F. (1993a), "Multi-Market Trading and Price-Volume Relationship: The Case of the Nikkei Stock Index Futures Markets", Working Paper 92-93, Boston University.
6. Bacha O. and Villa F. (1993b), "Futures Markets, Regulation and Volatility: The Case of the Nikkei Stock Index Futures Markets", Working Paper 92-93, Boston University.
7. Brenner M., Subramanyam M. And Uno J. (1989), "The Behaviour of Prices in the Nikkei Spot and Futures Market", Journal of Financial Economics, 23, pp 363 - 384.
8. Brenner M., Subramanyam M. And Uno J. (1990), "Arbitrage Opportunities In The Japanese Stock and Futures Markets", Financial Analyst Journal, 46, pp 14-24.
9. Brown-Hruska S. And Kuserk G. (1995), "Volatility, Volume, and The Notion of Balance in the S & P 500 Cash and Futures Markets", Journal of Futures Markets, 15, pp 677 - 689.
10. Chang, Kang and Rhee (1993), "The Behaviour of Malaysian Stock Prices". Working Paper No. WP9302, PACAP Research Center. The University of Rhode Island.
11. Choi H. And Subramanyam A. (1994), Using Intraday Data to Test For Effects of Index Futures on The Underlying Stock Markets", Journal of Futures Markets, 14, pp 293 - 322.
12. Choudry T. (1997), "Short-Run Deviations and Volatility in Spot and Futures Stock Returns: Evidence From Australia, Hong Kong and Japan", Journal of Futures Markets, 17, pp 689 -705.
13. Chu C.C. and Bubnys E.L. (1990), "A likelihood Ratio Test of Price Volatilities: Comparing Stock Index Spot and Futures", Financial Review, 46, pp 1791 -1809.
14. Dahrat A.F. and Rahman S. (1995), "Has Futures Trading Activity Caused Stock Price Volatility?", Journal of Futures Markets, 15, pp 537 -557.
15. Edwards F.R. (1998a), "Does Futures Trading Increase Stock Market Volatility?", Financial Analyst Journal, 44, pp 63-69.
16. Edwards F.R. (1998b), "Futures Trading and Cash Market Volatility: Stock Index and Interest Rate Futures", Journal of Futures Markets, 8, pp 421 - 439.
17. Feinstein S.P. and Goetzmann W.N. (1988), "The Effect of the "Triple Witching Hour" on the Stock Market Volatility", Economic Review, September - October, pp2 - 18.
18. Freris A. F. (1990), "The Effects of The Introduction of Stock Index Futures on Stock Prices: The Experience of Hong Kong 1984 - 1987", Pacific Basin Capital Market Research, pp409-416.
19. Gregory Koutmos and Michael Tuckers, "Temporal Relationships and Dynamic Interactions Between Spot and Futures Stock Markets", The Journal of Futures Markets, 1996, volume 16, No. 1 pp 55-69.
20. Hancock G.D. (1991), "Futures Options Expiration and Volatility in The stock Index Futures Market", Journal of Futures Markets, 11, pp 319 -330.
21. Hodgson A. and Nicholls D. (1991), "The Impact of Index Futures Market on Australian Share Market Volatility", Journal of Business Finance and Accounting, 18, pp 267 - 280.
22. Karakullukcu M. (1992), "Index Futures : Expiration Day Effects in The UK and prospects in Turkey, Mimeo, London School of Economics, May, pp36.
23. Kipnis G.M. and Tsang S. (1984), "Arbitrage in Stock Index Futures", (ed F.J. Fabozzi and Kipnis G.M.) Dow-Jones Irwin, pp 124 -141.
24. Koutmas G. And Tucker M. (1996), "Temporal Relationship and Dynamic Interactions Between Spot and Futures Stock Markets", Journal of Futures Markets, 16, pp 55 -69.
25. Lee S.B. and Ohk K.Y. (1992), "Stock Index Futures Listing Structural Change In Time Varying Volatility", Journal of Futures Markets, 12, pp 493 -509.
26. Miller M.J. and Galloway T.M. (1997), "Index Futures Trading and Stock Return Volatility: Evidence From The Introduction of MidCap 400 Index Futures", The Financial Review, 32, pp 845 - 866.
27. Pericli A. and Koutmas G. (1997), "Index Futures and Options Market Volatility", Journal of Futures Markets, 17, pp 957 - 974.
28. Robert T. Daigler, "Intraday Futures Volatility and Futures Theories of Market Behaviour", The Journal of Futures Markets, 1997, volume 17, pp 45-74.
29. Sharon Brown-Hruska and Gregory Kuserk, "Volatility, Volume and the Notion of Balance in the SPP 500 Cash and Futures Markets", The Journal of Futures Markets, 1995, volume 15, No. 6, pp 677-689.
30. Stoll H.R. and Whalley R.E. (1991), "Expiration Day Effect: What Has Change?", Financial Analyst Journal, 47, pp 58 -72.
31. Taufik Choudry, "Short Run Deviations and volatility in Spot and Futures Stock Returns Evidence From Australia, Hong Kong and Japan", The Journal of Futures Markets, 1997, volume 17, No. 6, pp 689-705.
32. T. Randall Fortenbery, "An Evaluation of Price Linkages Between Futures and Cash Markets for Cheddar Cheese", The Journal of Futures Markets, 1997, volume 17, No. 3, pp 279-301.
33. Twite G.J. (1991), "The Pricing of Share Price Index Futures Contracts With Taxes and Transaction Costs", University of South Wales, Working paper, 40 pp.
34. Yadav P.K. and Pope P.F. (1990), "Stock Index Futures Arbitrage: International Evidence", Journal of Futures Markets, 10, pp 573 - 604.
35. Yau J., Schneeweis T, and Yung K. (1990), "the Behaviour of Stock Index Futures Prices in Hong Kong: Before and After the Crash", Pacific Basin Capital Market Research, pp 357 -378.